India’s governance of settlements rests on a binary. The 73rd and 74th Constitutional Amendments created two tiers of local government: panchayats for rural areas and urban local bodies for urban areas, with no third category. The default is ‘rural’ unless a government notification states otherwise.
The Census sits uneasily within this binary because it recognizes something the Constitution does not: the Census town.
Alongside places that are administratively urban (statutory towns), it identifies Census towns based on a statistical test: a settlement with at least 5,000 people, a density of at least 400 people per square kilometre, and at least 75% of the male main working population engaged outside agriculture. Everything else is rural. The Census identifies urban areas well before the state gets around to saying so.
That gap is the subject of a paper by V. Tandel, K. Hiranandani and M. Kapoor, ‘What’s in a Definition?: A Study on Implications and Suitability of Urban Definitions in India through its Employment Guarantee Programme.’ A Census town, they show, remains rural for every purpose that matters to its residents: still governed by a panchayat, still taxed as rural land and still eligible for rural schemes.
Conversion requires a discretionary state decision, and the authors document why it is often avoided—residents fearing higher taxes or lost entitlements, panchayats resisting loss of authority, builders preferring laxer land-use norms and states with their own political reasons for inaction.
They test whether this reflects a simple fiscal motive—places staying rural, i.e., to keep drawing jobs guarantee funds—and find that the evidence does not support such a story. Their analysis points to misclassification and inefficiency, not rent-seeking.
The United Nations’ World Urbanization Prospects 2025 report reframes this problem in a way that is harder to set aside. Where the Indian system asks a binary question, the UN’s ‘Degree of Urbanization’ methodology treats settlements as a continuum, classifying every square kilometre of a country as city, town or semi-dense area, or rural, using consistent and internationally comparable thresholds of population, density and contiguity.
Applied to India, this suggests a much larger share of the country is already functionally urban than our administrative or Census definitions show. China has repeatedly widened its urban definition as its settlements changed; India’s criteria have remained static, leading to ‘hidden urbanization’: settlements that function as towns but are recorded and governed as villages.
The implication is practical, not just conceptual. If functionally urban conditions are this widespread, the next Census is likely to record a sharp jump in India’s measured urban population: thanks to places that have already crossed the Census town threshold.
That jump will reflect measurement catching up with a transformation already underway, not fresh migration or construction, and it will force us to confront on a much larger scale the governance question Tandel and her co-authors raised: what happens to a place and its people when its administrative status changes.
The deeper problem is that our welfare architecture is not designed to answer this question gracefully. Programmes are organized vertically by ministries, each defining beneficiaries in the vocabulary of its own jurisdiction: rural schemes are run by the ministry of rural development, anchored to rural local-body status, and a similar set are run by the ministry of housing and urban affairs, anchored to urban status, with different assumptions and funding formulas.
A settlement’s classification is therefore not just a label; it is the switch that determines which protections apply to the people living there.
Because rural and urban are treated as static categories rather than points on a moving continuum, the switch is treated as a one-off event, even though development makes it recurring. A village’s economic character can change—through a new highway, an industrial corridor or construction activity—well before its governance.
Reclassification, when it happens, is often abrupt: eligibility for rural schemes lapses the moment a panchayat becomes a ‘nagar panchayat,’ while the income security and services of genuine urban status arrive much slower, if at all.
A casual-labour household does not become less vulnerable because the settlement’s legal status changes; it has simply exchanged agricultural vulnerability for non-agricultural vulnerability—and it is precisely this household that welfare schemes exist to protect.
This is not an argument for abandoning rural and urban categories or for adopting a single national definition—the UN treats harmonized measures such as the ‘Degree of Urbanisation’ as complementary to national definitions, not as a replacement. Tandel and her co-authors note that the US and UK already use different context-specific definitions of rurality across programmes.
What India needs instead is policy continuity: a mechanism that ensures a change in administrative classification does not by itself sever a household’s access to the protections it relies on.
For this, existing beneficiaries could be grandfathered during a transition period after reclassification; poverty- or insecurity-linked eligibility could follow the household rather than reset at the jurisdictional boundary; and eligibility could be defined by the condition a programme addresses—income insecurity, unemployment, inadequate housing, lack of services, etc—rather than by the ministry or local body that governs the particular settlement.
The question we must address is not simply where to draw the line between village and town. It is what happens to the people standing on that line when the country finally redraws it—and whether India’s welfare architecture can keep pace with a transition that, by the UN’s numbers, is already well underway.
The author is a visiting professor at the Institute for Studies of Industrial Development and former chief statistician of India